Clean Power Plan Litigation: The Supreme Court Should Rein in the EPA

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On Monday, the Supreme Court heard oral argument in West Virginia v. Environmental Protection Agency. Depending on how the Court decides it, the case could either jumpstart or throttle President Biden’s stalled agenda to achieve a NetZero electric power sector by 2035.

The Court is examining the lawfulness of both the Obama administration’s marquee climate policy, the October 2015 Clean Power Plan (CPP), and the Trump administration’s June 2019 Affordable Clean Energy (ACE) Rule, which repealed and replaced the CPP. West Virginia is challenging the D.C. Circuit Court’s January 2021 decision, in American Lung Association v. EPA, to vacate the ACE Rule.

Both ACE and the CPP target power plant carbon dioxide (CO2) emissions. However, ACE aimed to improve the environmental performance of coal power plants (measured in pounds CO2 per megawatt hour), whereas the CPP aimed to squeeze coal power plants out the electricity marketplace.

Power Grab and “Major Questions”

Here is the precise question before the Court:

Whether in Section 111(d), an ancillary provision of the Clean Air Act (CAA), Congress constitutionally authorized the Environmental Protection Agency to issue significant rules—including those capable of reshaping the nation’s electricity grids and unilaterally decarbonizing virtually any sector of the economy—without any limits on what the agency can require so long as it considers cost, nonair impacts and energy requirements.

In the CPP, the Environmental Protection Agency (EPA) claimed authority to restructure the U.S. electric power sector by shifting generation from coal to gas power plants, and from fossil-fuel power plants to renewables. Such authority would empower the EPA to impose tens to hundreds of billions of dollars in costs on power producers and consumers, decimate the coal industry, and vitiate states’ congressionally-protected power to plan electricity resource development within their borders. 

By implication, the EPA claimed authority to force a shift in production, even to the point of bankrupting disfavored companies, within any CO2-emitting industry or sector.

When did Congress deputize the EPA to remake the U.S. economy for climate change purposes? Never. Congress repeatedly debated “comprehensive climate and energy legislation,” a.k.a. greenhouse cap-and-trade bills, during the 2000s. It enacted none. Similarly, the Senate never ratified the Kyoto Protocol, the Copenhagen Agreement, or the Paris Climate Accords.

Petitioners in West Virginia ask the Court to apply the “major rules” doctrine to the CPP and the D.C. Circuit’s decision. That doctrine is really just constitutional common sense.

As outlined by Justice Antonin Scalia in Utility Air Regulatory Group v. EPA (2014), the major rules doctrine holds that Courts should expect Congress to “speak clearly” if it wishes to assign to an agency “decisions of vast economic and political significance.” Consequently, courts should be skeptical—not deferential—when an agency “claims to discover in a long-extant statute an unheralded power to regulate a significant portion of the American economy.”

Stuck with Massachusetts v. EPA—for Now

My colleague Steve Milloy goes further, noting that when Congress enacted the CAA in 1970, global warming was not even a blip on lawmakers’ radar scope. The 1970 CAA contains no title, section, or subsection on so-called carbon pollution, the greenhouse effect, or global climate change.

Not until the 1990 CAA Amendments did Congress address global warming, and then only in two nonregulatory provisions, CAA 103(g) and 602(e). Both provisions culminate in admonitions (to courts and the EPA) not to jump to regulatory conclusions.

Section 103(g) is more pertinent to West Virginia, as it specifically focuses on “stationary sources, including fossil-fuel power plants.” The provision repeatedly directs the EPA to develop “nonregulatory strategies and technologies” to reduce “multiple air pollutants …  including carbon dioxide” from such sources. It concludes: “Nothing in this subsection shall be construed to authorize the imposition on any person of air pollution control requirements.”

The only time Congress spoke directly in the Clean Air Act about “carbon dioxide” and “power plants,” it told the EPA not to impose “air pollution control requirements.”

Ignoring that provision and discounting the legislative history, the Supreme Court in Massachusetts v. EPA (2007) ruled that the EPA could regulate CO2 for climate change purposes, because greenhouse gases “fit well within” the 1970 CAA’s “capacious definition” of “air pollutant.” CAA Section 302(g), which defines “air pollutant,” is only two sentences long. As I explain here, to reach its preferred conclusion, the 5-4 Massachusetts Court had to skip over a key term (“air pollution agent”) in the first sentence and entirely ignore the second sentence. Milloy is correct—Massachusetts was a “supreme error.”

However, the Court in West Virginia is not reconsidering Massachusetts v. EPA. Nor is it reconsidering American Electric Power v. Connecticut (2010), in which the Court claimed that CAA Section 111 “speaks directly” to the issue of climate change and power plant CO2 emissions. That opinion is incorrect (there is no statement in CAA 111 about carbon dioxide or climate change) and cannot be reconciled with CAA 103(g). Alas, West Virginia is not the “supreme correction” constitutionalists seek.

Nonetheless, if petitioners prevail, West Virginia will stop the EPA from morphing into an industrial policy czar for the electric power sector and, ultimately, all CO2-emitting U.S. industries.

Statutory Issues

CAA section 111 directs the EPA to establish emission performance standards for new (future) stationary sources, and a process whereby states can impose standards for existing (already built) sources. Performance standards are to reflect the “best system of emission reduction” (BSER) that the EPA determines to be “adequately demonstrated” (roughly meaning effective and affordable).

Since “systems” are designed for and apply to “sources,” the legal meaning of “system” depends on that of “source.” CAA 111 defines stationary source as “any building, structure, facility, or installation which emits or may emit air pollutants.” Consequently, a bona fide BSER must be based on measures that can be applied at and by the source. 

Consistent with that reasoning, all previous BSERs, whether for new sources under CAA 111(b) or existing sources under 111(d), were based on reductions achievable at and by the individual sources. 

The Obama administration refused to accept that limitation because there are no affordable technologies for substantially reducing CO2 emissions from existing power plants. The closest facsimile would the ACE Rule’s policy—BSER consists of equipment upgrades and best practices that reduce emissions at the margins by enabling coal power plants to operate more efficiently.

However, making coal generation more efficient would not advance and could even impede President Obama’s goal to “finally make renewable energy the profitable kind of energy in America.”

So, the EPA came up with a scheme to impose unattainable performance standards on existing fossil-fuel power plants. For example, the CPP set a standard of 1,305 lbs. CO2/MWh for existing coal power plants (many of which are decades old) even though new highly-efficient supercritical pulverized coal units emit more than 1,700 lbs. CO2/MWh.

How could existing fossil-fuel power plants possibly comply? The CPP gave owners and operators the option to purchase power from, invest in, buy emission-reduction credits from, or otherwise cede market share to lower- and zero-emission facilities elsewhere on the grid. Such “generation shifting”—effectively a gigantic wealth transfer from coal and gas power plants to their competitors—is the CPP’s principal BSER. 

To make it look legal, the CPP reimagined “source” to include power plant owners and operators in their capacity as market actors. More fundamentally, the CPP imagined the entire North American power sector to be a single source—a vast “machine” in which individual power plants are mere cogs. 

But owners and operators are not sources, and neither is an economic sector, which is a market process. The electricity sector, for example, includes numerous nuclear, wind, solar, and hydro power facilities, which are not “sources,” and millions of ratepayers who do not produce power.

In American Lung Association, the D.C. Circuit Court denied that the CPP implicates the major rules doctrine. Congress, it argued, made a “clear decision” to authorize the EPA to determine what system of emission reduction is best, and rather than “impose” generation shifting on all sources, the CPP allows each state to decide for itself how to meet its CPP emission-reduction targets. 

The Circuit Court overlooked two obvious facts. First, the CPP’s “best system” was unprecedented in being based on emission reductions exceeding the technological capabilities of any existing source. Ceding market share thus became coal power plants’ only “choice” to avoid even more drastic economic losses.

Second, unlike all previous “best systems” in CAA 111 rulemakings, generation shifting is designed to restrict the source’s hours of operation, reduce its output, and, ultimately, shut it down. None of those outcomes improves the source’s environmental performance. The CPP’s “performance standards” are actually non-performance mandates.

The Circuit Court also argued that the CPP does not trigger the major rules doctrine because, in BSER determinations, CAA 111 “significantly reins in the EPA’s judgment” by requiring the agency to consider compliance costs, non-air environmental impacts, and energy requirements.

However, compliance costs can significantly constrain the EPA’s discretion only if BSER is itself limited to measures that can be applied at and by the individual sources. Industry data readily indicate whether sources can or cannot afford to apply the specific technologies or design and work practice modifications proposed as BSER. In contrast, the compliance costs of generation shifting are more speculative, and the EPA can always claim—as it did in the CPP—that it is simply nudging the market in the direction it is moving anyway.

“Energy requirements” do not significantly constrain the EPA either, because the agency can always lowball reliability concerns by postulating renewables will scale up fast enough to replace the fossil fuel units forced into premature retirement. And when renewables fail to keep pace with demand, the EPA could say, as California politicians do, that rolling blackouts are just the growing pains of a grid in transition. 

The pro-renewables commentariat will never acknowledge that Texas’ refusal to value the reliability provided by coal and nuclear plants’ on-site fuel storage contributed to the state’s devastating electricity crisis of February 2021. 

More fundamentally, the Circuit Court missed the big picture. The CPP was a blatant attempt to resolve an issue of major public controversy that Congress was still debating. Even today, more than 30 years after Congress declined to include greenhouse gas regulatory authority in the 1990 CAA Amendments, President Biden and his congressional allies are unable to enact even non-regulatory measures to reduce power-sector CO2 emissions. 

That’s why the Biden administration wants the Supreme Court to uphold the Circuit Court’s opinion that Congress placed “no limits on the types of measures” the EPA may define as BSER. The EPA could then proceed to implement coercive climate policy without needing to build legislative majorities and without fear of voter retribution at the polls.

CPP Defenders’ Confusions

In this week’s oral argument, the CPP’s defenders—Solicitor General Elizabeth Prelogar, power company attorney Beth Brinkman, and Justices Elena Kagan and Sonia Sotomayor—argued that generation shifting via cap-and-trade is not inherently costlier than facility-specific technology requirements, which in principle “could drive the entire coal industry out of business tomorrow.” They further argued that trading programs reduce emissions in the most cost-effective way.

While cap-and-trade is often the low-cost method for meeting a specific emissions reduction target for an entire economy or sector, compliance costs hugely depend on the stringency of the target, i.e., the “cap.” And the whole point of the CPP was to impose emission reduction targets more stringent than those that could pass muster under a facility-specific BSER.

Let’s compare the CPP’s total compliance costs and emission reductions to those of the ACE Rule, and see which rule imposes a greater overall burden on the regulated facilities. The CPP estimates that states using cap-and-trade programs would reduce power-sector CO2 emissions by 413 million tons over 10 years, at a cost of $5.1 billion (80 FR 64924, 64680). ACE estimates that its facility-focused BSER measures would reduce power-sector CO2 emissions by 32.3 million tons by 2035, at a cost of $595 million (84 FR 32561-32562).

Those numbers imply that the CPP reduces CO2 emissions at a cost $12.34 per ton, and ACE at a cost of $18.42 per ton. In that respect, the CPP is more “cost-effective.” However, it is also hugely more expensive. Total estimated CPP compliance costs exceed those of ACE by more than 850 percent.

In the oral argument, the CPP’s defenders often blurred the critical distinction between emissions trading as a means of complying with a performance standard and trading as a basis for setting the standard. Comparing the CPP and ACE proves that when the EPA uses emissions trading to set the standard, it imposes much greater costs than when the standard is based on facility-specific measures.

I will let West Virginia Solicitor General Lindsey See have the last word:

This is a major question because it [the CPP’s legal theory] allows EPA to determine what the power sector as a whole should look like and who can be in it. It transforms the statute from something that is about how a particular source can operate more efficiently. …  So, this is new power. This is transformative power. It’s power that goes into an area of traditional State authority, which is energy and utility regulation. So, whatever definition of major questions the Court [uses], this is far on the other side of it.